VAT Guide

FAQs

My landlord has issued a backdated invocie for VAT for 2018, do I have to pay?

Question: My landlord have issued me a back dated invoice for the VAT for rental in 2018. I am obliged to pay, otherwise they will not renew my tawteeque for my company. Since the VAT invoice is for 2018 and 2019, i need to know if i am able to claim it for this quarters’ filing.

Answer:
Since we do not have the details of the invoices and the current return period, we can only give a general feedback on the query.

In case of input VAT, the input VAT claim can be made for the previous and current return period only. You will not be able to claim for back dated invoices beyond previous return period.

A supplier failed to charge Vat in his invoice is there any penalty to the recipient/supplier?

Question

A supplier failed to charge Vat in his invoice. However, in the next month billing cycle he charged Vat for that month as well as VAT of earlier month (which was not charged). Payments are progressive based on certified value. Is there any penalty to the recipient/supplier?

Answer

In case VAT is not charged and the returns are not filed, it can be adjusted in the next invoicing cycle within the same tax period.

Where the VAT is not charged and returns are filed:

If the value of VAT is less than AED 10k, it can be adjusted in the next invoicing cycle.

If the VAT value is greater than AED 10K, then there is the option of voluntary disclosure, which would have its own cost.

Consultancy services to a company in Kuwait, which has no branches in UAE.

Question –
I am providing consultancy services to a company in Kuwait, which has no branches in UAE. The services are provided by way of emails only. Could you kindly clarify the following:
1. Are the services zero-rated?
2. Is the place of supply Kuwait?

Answer –As per Article 31(1)(a) of the VAT Executive Regulations, where the Services are supplied to a Recipient of Services who does not have a Place of Residence in an Implementing State and who is outside the State at the time the Services are performed, the services can be zero rated.

In the absence of agreement at the GCC level, the Implementing State condition is diluted to outside State (UAE).

The services described falls in the above criteria, hence it will be zero rated.

We are transportation “Taxi” under exempted category

Questions

We are transportation “Taxi” sector in Abu Dhabi under exempted category with 1347 taxi vehicles.

1.Question

As per Regulator (ITC) the taxi vehicles should not be work more than 5 years or pass 700,000 km whichever is earlier, we always do de-fleeting (replacement) and change the expired car by low with a new one by selling the used/expired one thought formal Bidding, please advise on the following :

A. In case of the sale price for used car is over the net book value is this transaction subject to VAT?

B. In case of the sale price for used car is less the net book value is this transaction subject to VAT?

(A&B) Answer – In the context of VAT, VAT is applicable on the consideration of the good sold. So in this case it is applicable on the sale price (consideration). It has no relation to NBV.

C. What is the method of selling the used car value selling price or NBV-VAT paid for purchase).

(C) Answer – Consideration for VAT is the selling price.

D.If I am selling the existing cars which I bought prior to VAT implementation so is this transaction still subject to tax?

(D) Answer – Yes, VAT is applicable on the sale transaction.

2. Question

Can we capitalize the VAT paid for assets purchase as an child asset over the life cycle?

3. Question

Can we amortize the VAT paid for assets purchase by coding the VAT as prepayment to be amortized over the life of assets?

2 & 3. Answers – Normally wherever there is VAT paid, it is recorded as VAT receivable in Balance sheet as it is input tax credit recovered against the output tax payable. It is not to be capitalised with the asset.

However in your case, as transportation is exempt revenue, you would not be claiming input tax credit. The accounting treatment for VAT on asset purchase – expensed/capitalised/prepayment is something to be agreed with your Management/Auditors.

4. Question

Can we amortize the VAT paid for service & rental by coding the VAT as prepayment to be amortized over the agreement?

4. Answer – Normally wherever there is VAT paid, it is recorded as VAT receivable in Balance sheet as it is input tax credit recovered against the output tax payable. It is not to be capitalised or treated as prepayment.

However in your case, as transportation is exempt revenue, you would not be claiming input tax credit. The accounting treatment for VAT on service/rental – expensed/amortisation is something to be agreed with your Management/Auditors.

If Company A in UAE provides accounting services to Company B of USA. Is it taxable? Is it charged at standard rate of 5% or 0%?

In case of services given to customers outside UAE, it is a zero-rated VAT service. Tax invoice should be raised and reported in the VAT return.

Declare Drop shipment transactions in VAT Returns

Question

I have a company in Rak Freezone.
Some of my business includes drop shipping ie I order from my suppliers in China and then deliver directly to customers outside of the GCC.
In this case, how do I declare this income in my VAT return?

Answer
Drop shipment transactions would be out of scope and need not be reported in the returns. However the details of transactions should be maintained for audit trail and future reference.

VAT Applicability of Designated and Free Zone export and import of goods

Question
Our Standered Operative system is as under.

We are in Free Zone/Designated Zone.
Maximum of the Purchase are Imported by Sea, which is the real import against duty deposit.
Some material comes from Mainland companies with VAT and some from the designated zone with zero vat.
Our Maximum Sales is as export outside the country with the document maccasa with duty paid at our custom office.
Sometime in export sale customer tell he will arrange the consoled transport for getting the material then we send the material with the local out document but the material in really gone out of the country.
And we have few businesses in the mainland and we cleared the material with our custom code and make tax invoice.
I explained our business operation above
Now please advise what exactly we do.
If we send the consolidated shipment and the same will treat as export and if we sold in local/export mainland and the same will not come in our import box no. 6

Answer
If the goods are exported outside the country and there is commercial and official evidence of the export, it will be zero-rated for VAT.

If sold in local/ export mainland, this will be out of scope as the customer is importing into the mainland and he will pay the VAT on RCM basis.

VAT Return filing date

Question
I got a message from FTA – Please note that your VAT Returns are not due to be submitted this tax period. Please refer to your dashboard for information about your filing period. I send email to them but now more than one week I did not receive the message, please guide me what to do in this situation.

Answer
The message is coming as your return is not due.

VAT Liability in case of import/export of goods

Question

We are the free zone company and we are doing export to Saudi Arabia many time ( but when the material out from our works its show in import in the auto-populated column of the vat return ) please advise how I can reverse from the same. and also advise if we are exporting through consoled shipment then how we can prove that is the export outside the country because we didn’t have the border exit document with our name.

Answer

Our understanding is that you are getting the material into mainland using your import code. Hence the value gets auto-populated in box 6 of the FTA returns portal. We need to understand the modality of your business and then we can advise the solution.

Also regarding the export proof, there is the requirement to get the official evidence of export in order to treat the transaction as zero-rated. This might involve custom formality to seek separate inspection and documentation for proof of export.

How to file VAT returns in UAE?

MCA has shared a very comprehensive guide on How to File VAT Returns. Refer to this Returns Filing page on our website for more details

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